January 8, 2010 / 11:08 AM / 8 years ago

Iceland lawmakers meet to set Icesave referendum

* Parliament convenes early to decide on Icesave vote

* Referendum seen in late February, early March

* Govt spokesman says no plan B to holding referendum

By Omar Valdimarsson

REYKJAVIK, Jan 8 (Reuters) - Iceland’s parliament meets on Friday to thrash out plans for a referendum on the terms under which the country will repay more than $5 billion to Britain and the Netherlands in the wake of a banking collapse.

British and Dutch depositors in high-interest “Icesave” bank accounts lost their money when Iceland’s entire financial system imploded in late 2008 under a massive weight of debt.

The two countries compensated their savers in full and want their money back from Iceland. But Icelandic President Olafur Grimsson this week unexpectedly refused to sign a bill to repay them.

His rejection has thrown the country into crisis and jeopardised continued aid from international lenders, seen as vital for getting the economy back on its feet.

The government now plans to hold a referendum late in February or early in March, but the result is highly uncertain with opinion polls suggesting a majority of the 320,000 Icelanders oppose the so-called Icesave bill.

“They have to decide the date and the law is quite simple,” said Einar Haraldsson, spokesman at the prime minister’s office.

“There will be a debate on the phrasing of the question.”

If the new Icesave law is rejected, an earlier version -- passed during the summer -- enters into force. Britain and the Netherlands said the terms outlined under the earlier bill were unacceptable, mainly because repayments would not be guaranteed by the Icelandic government after 2024.

The small North Atlantic island is under heavy pressure from lenders and credit rating agencies. Opposition leaders, who initially demanded a referendum, appear to have got cold feet about a public vote on Icesave.

Several have been quoted in Icelandic newspapers as saying it may not be too late to avoid a referendum and instead try for new talks with Britain and the Netherlands.

Haraldsson said the government was not actively looking for an alternative to holding the referendum, though a new initiative from Britain, the Netherlands or a third party could potentially unlock the situation.”

“No, there is no B plan,” he said. “Something new has to come into the picture ... But this has to be very drastic and with an outlook for a solution.”

Many Icelanders are angry about the bill -- which only squeezed through parliament by 33 votes to 30. They believe it lumbers the island’s taxpayers with a crippling burden which is not their responsibility.

Others believe that though the price to be paid is high, it is the only way to restore the country to economic normality, ensure it has access to international markets and can join the European Union, a move seen as crucial to long-term financial stability.

How big the final bill is depends on how much money can be recovered from the sale of assets held by Landsbanki -- the failed bank that offered the Icesave accounts and held the bulk of Dutch and British savers’ money.

Additional reporting by Niklas Pollard; Writing by Simon Johnson; editing by Mark Trevelyan

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